Chapter 12 (2)

CHAPTER 12 SUGGESTED ANSWERS EXERCISES Exercise 12 -1 1. Investment in Stun Corp. Cost of investment (800 shares @ P200) Book value of interest acquired as of July 1, 2006 Ordinary Share Capital (1,000 shares x P100 x 80%) Retained Earnings [(P50,000 + 1/2 of P30,000) 80%] Goodwill Grossed-up Goodwill (P28,000 / 80%) 2.

Investment in Stud Corp. Cost of investment (900 shares @ P100) Book value of interest acquired as of July 1, 2003 Ordinary Share Capital (1,000 shares x P100 x 90%) Retained Earnings [(P15,000 + 1/2 of P5,000) 90%] Goodwill Grossed-up Goodwill (P15,750 / 90%)

Exercise 12 - 2 1. Equity Method a. Investment in Stark Co. Cash b.

Investment in Stark Co. Equity in Subsidiary Income P30,000 x 1/2 x 75% = P11,250 Equity in Subsidiary Income Investment in Stark Co.

c.

d.

Cash Investment in Stark Co. P30,000 x 75% = P22,500

P80,000 52,000

P90,000 ( 15,750)

74,250 P 15,750 P 17,500

240,000 240,000 11,250 11,250 500 500 22,500 22,500 7,500

Equity in Subsidiary Income Investment in Stark Co.

1,500

no entry Cash

132,000 P 28,000 P 35,000 P 90,000

Equity in Subsidiary Income Investment in Stark Co.

Cost Method a. Investment in Stark Co. Cash b. c.

P160,000

7,500 1,500 240,000 240,000 22,500

Chapter 12 - Suggested Answers

(AA2.2006)

page 2

Dividend Revenue Investment in Stark Co. d. 2.

11,250 11,250

no entry

Ordinary Share Capital APIC RE [P20,000 + (P30,000 x 1/2)] Total shareholders’ equity on date of acquisition

P200,000 50,000 35,000 P285,000 x 75% P213,750

Book value of interest acquired Exercise 12 –3 1. Investment in Saturn Co. Cash Cash Dividend Income (80,000 x 80%) 2.

Original cost of investment – P800,000

3.

Minority net income = P200,000 x 20% = P40,000

4.

Minority interest, December 31, 2008: Ordinary Share Capital Retained Earnings = P500,000 + P200,000 – P80,000 Total Minority interest percentage Minority interest

5.

2008 Jan. Dec.

1 31

31

800,000 800,000 64,000 64,000

P

500,000 620,000 P1,120,000 x 20% P 224,000

Investment in Saturn Co. Cash

800,000

Investment in Saturn Co. Equity in Subsidiary Income P200,000 x 80% = P160,000

160,000

Cash Investment in Saturn Co. P80,000 x 80% = P64,000

800,000 160,000 64,000 64,000

Original cost of investment Equity in subsidiary income Dividends received from subsidiary Balance of investment, December 31, 2008

P800,000 160,000 ( 64,000) P896,000

Minority net income (P200,000 x 20%) Minority interest, January 1, 2008 (P1,000,000 x 20%) Minority net income (see # 3) Minority dividends (P80,000 x 20%) Minority interest, December 31, 2008

P 40,000 P200,000 40,000 ( 16,000) P224,000

Chapter 12 - Suggested Answers

(AA2.2006)

page 3

Exercise 12 – 4 a. Investment in Saloon Corp. Cash 750 shares @ P90 = P67,500

67,500 67,500

b.

Received 75 shares from Saloon Corp. as stock dividend. shares.

c.

Cash Investment in Saloon Corp. 825 shares @ P5 = P4,125

4,125

Investment in Saloon Corp. Equity in Subsidiary Income P15,000 x 75% = P11,250

11,250

d.

e.

4,125

11,250

Equity in Subsidiary Income Investment in Saloon Corp. P6,000 x 75% = P4,500

4,500 4,500

Exercise 12 – 5 Assuming the interest of Paxton is 60% (a) 2006 2007 2008 (b)

Shares now owned and held are 825

2006 2007 2008

P300,000 P180,000 P750,000

P300,000 + (40% of P210,000) P180,000 + (40% of P120,000) P750,000 + (40% of P 75,000)

P384,000 P228,000 P780,000

Exercise 12 - 6 Net income (loss) from own operations: Pastel Corp. Sly Corp. (90%-owned) Sty Corp. (70%-owned) Depreciation: Excess of cost over book value of investment in Sly (P10,000/90%/5 yrs.) Excess of book value over cost of investment in Sty (P5,000/70%/5 yrs.) Consolidated net income

Case A

Case B

Case C

P 80,000 40,500 ( 10,500)

P(20,000) 45,000 49,000

P40,000 27,000 24,500 ( 2,220)

________ P110,000

Exercise 12 – 7 1. a. Investment in Sat Co. Retained Earnings, Pat Co. To record the share of Pat in the net increase in the retained earnings of Sat. (P70,000 - P50,000) 80% = P16,000

________ P 74,000

1,430 P90,710

16,000 16,000

Chapter 12 - Suggested Answers

b.

c.

d.

2.

(AA2.2006)

page 4

Ordinary Share Capital, Sat Co. (P200,000 x 80%) Retained Earnings , Sat Co. (P70,000 x 80%) Investment in Sat Co. To eliminate 80% of stockholders’ equity account balances of Sat Co.

160,000 56,000 216,000

Assets Investment in Sat Co. Minority Interest To record excess of cost over book value of inv. P208,000 - (P250,000 x 80%) = P8,000/80% = P100,000 (10,000) Operating Expenses Retained Earnings, Pat Co. Assets To record depreciation of adjustment for prior years and current year at P1,000 per year. Pat and Subsidiary Sat Co. Consolidated Working Paper For the Year Ended December 31, 2008 Pat Co.

Adj. & Eliminations Debit Credit

Sat Co.

10,000 8,000 2,000

1,000 2,000 3,000

Cons. IS

Minority Interest

Cons. BS

Debits Cash and Other Assets

Inv. in Sat Co. stock

Cost of Sales Operating Expenses Total Credits Liabilities Ordinary Share Capital, P100par Retained Earnings Sales

452,000 208,000

440,000

300,000

200,000

90,000 1,050,000

50,000 690,000

150,000

120,000

300,000 100,000

200,000 70,000

500,000 1,050,000

300,000 690,000

c. 10,000 a. 16,000

d. 3,000 b. 216,000 c. 8,000 500,000

d.

1,000

141,000 899,000 270,000

b. 160,000 b. 56,000 d . 2,000

40,000 14,000

a. 16,000 (800,000) 159,000 10,000 149,000

Minority net income CNI

Minority interest Total

899,000

c. 245,000

2,000 245,000

300,000 114,000

10,000 64,000

149,000 66,000 899,000

3. Pat Co. and Subsidiary Sat Co. Consolidated Statement of Recognized Income and Expenses For the Year Ended December 31, 2008 Sales (P500,000 + P300,000) Cost of Sales (P300,000 + P200,000) Gross Profit Operating Expenses (P90,000 + P50,000 + P1,000) Operating Income

P800,000 500,000 P300,000 141,000 P159,000

Chapter 12 - Suggested Answers

(AA2.2006)

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Less Minority Interest net income (Sales – Cost of Sales – Operating Expenses) Consolidated Net Income

10,000 P149,000

4. Pat Co. and Subsidiary Sat Co. Consolidated Statement of Financial Position December 31, 2008 Assets Liabilities and Shareholders’ Equity Cash and Other Assets P899,000 Liabilities P270,000 Minority Interest 66000 Ordinary Share Capital, P100 par 300,000 Retained Earnings 263,00 _______ Total Liabilities and ________ Total Assets P899,000 Shareholders’ Equity P899,000 Exercise 12 - 8 a. Advances from Pallet Co. Advances to Stall Co.

15,000

b.

Notes Receivable Discounted Notes Receivable from Pallet Co.

10,000

Note Payable to Stall Co. Note Receivable from Pallet Co.

5,000

Dividends Payable Dividends Receivable

1,600

c. d.

Exercise 12 -9 September August August August August

1 16 27 31 31

15,000 10,000 5,000 1,600

Acquired investment at a cost of P630,000. The subsidiary declared dividends. The subsidiary distributed declared dividends. The parent recorded share in the reported income of the subsidiary. The parent recorded impairment/depreciation of the excess of cost over book value of the acquired investment.

PROBLEMS Problem 12 - 1 Cost of investment Book value of interest acquired : Ordinary Share Capital (P100,000 x 80%) Retained Earnings (P50,000 x 80%) Excess of cost over book value Percentage of ownership Grossed-up excess Allocation of excess: Plant and equipment Inventory Goodwill

P280,000 P 80,000 40,000

P 50,000 20,000

120,000 P160,000 ÷ 80% P200,000 76,000 P130,000

Chapter 12 - Suggested Answers

(AA2.2006)

page 6

Expenses on the adjustment Plant and equipment (P50,000/5 yrs.) Goodwill impairment Inventories Total

2007 P10,000 5,000 20,000 P35,000

2008 P10,000 4,000 ---__ P14,000

1. Journal entries on the books of the parent 2007 Jan. 1 Investment in Slow Co. Cash Dec.

31

31 2008 Dec.

31

31

c.

d.

2008

a.

280,000

Investment in Slow Co. Equity in Subsidiary Income P60,000 x 80% = P48,000

48,000

Equity in Subsidiary Income Investment in Slow Co.

35,000

Investment in Slow Co. Equity in Subsidiary Income P50,000 x 80% = P40,000

40,000

Equity in Subsidiary Income Investment in Slow Co.

14,000

2. Working paper elimination entries: 2007 a. Ordinary Share Capital, Slow Co. Retained Earnings, Slow Co. Investment in Slow Co. b.

280,000

Equity in Subsidiary Income (P48,000 – P35,000) Investment in Slow Co.

Plant and Equipment Goodwill Inventory Investment in Slow Co. Minority Interest

48,000

35,000

40,000

14,000 80,000 40,000 120,000 13,000 13,000

50,000 130,000 20,000 160,000 40,000

Cost of Sales Operating Expenses Plant and Equipment Goodwill Inventory

20,000 15,000

Ordinary Share Capital, Slow Co. Retained Earnings, Slow Co. (P110,000 x 80%)

80,000 88,000

10,000 5,000 20,000

Chapter 12 - Suggested Answers

b. c.

d.

3.

(AA2.2006)

page 7

Investment in Slow Co.

168,000

Equity in Subsidiary Income (P40,000 – P14,000) Investment in Slow Co.

26,000 26,000

Plant and Equipment Goodwill Investment in Slow Co. Minority Interest

40,000 125,000 132,000 33,000

Operating Expenses Plant and Equipment Goodwill

14,000 10,000 4,000

Computation of consolidated net income 2007 Net income from own operations: Plow Co. Slow Co. Impairment / depreciation / amortization Consolidated net income

P70,000 48,000 ( 35,000) P83,000

Problem 12 - 2 Original cost of investment (book value is also P294,000) Equity in subsidiary income – 2007 (P84,000 x 70%) Dividends received from subsidiary – 2007 (P63,000 x 70%) Balance of investment, December 31, 2007 Equity in subsidiary income - Jan. 1 - June 30, 2008 (P105,000 x 1/2 x 70%) Balance of investment, June 30, 2008 Cost of investment sold (P345,450 x 300/2,100) Equity in subsidiary income, July 1 - Dec. 31, 2008 (P105,000 x 1/2 x 60%) Dividends received from subsidiary – 2008(P94,500 x 60%) Balance of investment, December 31, 2008 Problem 12 - 3 Cost of investment Book value of interest acquired: Ordinary Share Capital (P1,000,000 x 80%) Retained Earnings (P1,600,000 x 80%) Goodwill

P 800,000 1,280,000

P294,000 58,500 ( 44,100) P308,400 367,750 P345,450 ( 49,350) 31,500 ( 56,700) P270,900

2,080,000 P 200,000 P 250,000

Peach Co. and Subsidiary Silver Co. Consolidated Working Paper For the Year Ended December 31, 2008 Eliminations Peach Co. Silver Co. Debit Credit 4,000,000

P 80,000 40,000 ( 14,000) P 106,000

P2,280,000

Grossed-up Goodwill (P200,000 / 80%)

Income Statement Sales

2008

2,000,000

Minority Interest

Consolidated

6,000,000

Chapter 12 - Suggested Answers

Cost of sales Gross profit Operating expenses

Operating income Equity in sub. Income

Net income MINI NI-carried forward

(AA2.2006)

1,600,000 2,400,000 1,560,000 840,000 278,000 1,118,000

1,200,000 800,000 440,000 360,000

1,118,000

360,000

6,000,000

1,600,000

1,118,000 7,118,000 800,000 6,318,000

360,000 1,960,000 120,000 1,840,000

600,000 400,000 800,000 1,200,000 800,000 2,456,000 2,462,000

200,000 400,000 600,000

page 8

e.

10,000

b.

278,000 72,000 72,000

2,800,000 3,200,000 2,010,000 1,190,000 -----1,190,000 72,000 1,118,000

320,000

6,000,000

72,000 392,000 24,000 368,000

1,118,000 7,118,000 800,000 6,318,000

360,000

Retained Earnings Statement

Balance, January 1 Net incomebrought forward Total Less Div. declared Balance, Dec. 31 Balance Sheet Cash Accounts rec’l Inventories Land Building (net of AD) Equipment (net of AD)

Inv. in Silver Co. Goodwill Total

8,718,000 604,000 196,000

AP and accrued exp.

Bonds payable OS - Peach (P100 par)

a. 1,280,000

c.

96,000

f.

10,000

800,000 790,000 1,400,000 1,200,000 800,000 4,456,000

2,000,000

3,200,000 360,000

c.

96,000

d.

250,000

f.

10,000

a. 2,080,000 b. 278,000 d. 200,000 e. 10,000

240,000 9,686,000 954,000 196,000

Co.

OS - Silver Co. (P20 par) APIC RE-brought forward

Total Minority interest

1,000,000

1,000,000 1,000,000

600,000 6,318,000 8,718,000

a.

800,000

200,000

1,840,000 3,200,000

368,000 2,724,000

d. 50,000 2,724,000

50,000

Peach Co. and Subsidiary Silver Co. Consolidated Statement of Recognized Income and Expenses For the Year Ended December 31, 2008 Sales Cost of Sales Gross Profit Operating Expenses Operating Income Less Minority Interest net income

P6,000,000 2,800,000 P3,200,000 2,010,000 P1,190,000 72,000

600,000 6,318,000 618,000 9,636,000

Chapter 12 - Suggested Answers

(AA2.2006)

page 9

Consolidated Net Income

P1,118,000

Peach Co. and Subsidiary Silver Co. Consolidated Statement of Financial Position December 31, 2008 Assets Cash Accounts Receivable Inventories Land Building (net of accumulated depreciation) Equipment (net of accumulated depreciation) Goodwill Total Assets

P 800,000 790,000 1,400,000 1,200,000 800,000 4,456,000 240,000 P9,686,000

Liabilities and Shareholders’ Equity Accounts Payable and Accrued Expenses Bonds Payable (face amount - P200,000) Minority Interest Ordinary Share Capital, P100 par Additional Paid-in Capital Retained Earnings Total Liabilities and Shareholders’ Equity

P 954,000 196,000 618,000 1,000,000 600,000 6,318,000 P9,686,000

Problem 12 - 4 Cost of investment Book value of interest acquired: Ordinary Share Capital (P600,000 x 80%) Retained Earnings (P800,000 x 80%) Excess of cost over book value of acquired investment Grossed-up excess (P392,000 /80%0 Allocation of excess: Inventories Land Building Equipment Patent (P80,000 x 80%) Goodwill Charges to expense for asset adjustments: Inventories Building Equipment Patent Goodwill

P1,512,000 P480,000 640,000

1,120,000 P 392,000 P490,000

p 60,000 100,000 200,000 (150,000) 80,000

P60,000 10,000 ( 15,000) 8,000 5,000

290,000 P 200,000

Chapter 12 - Suggested Answers 10

(AA2.2006)

page

Total

P68,000

Adjustments to Building and equipment: Building (increase is 50%) Cost (P520,000 x 50% ) AD (P120,000 x 50% ) Net amount

P260,000 60,000 P200,000

Equipment (decrease is 16.67%) Cost (P940,000 x 16.67% ) AD (P 40,000 x 16.67%) Net amount

P156,670 6,670 P150,000

Prose Co. and Subsidiary Slope Co. Consolidated Working Paper For the Year Ended December 31, 2008 Prose Co. Debits Cash AR Inventories Land Buildings Equipment Inv. in Slope Co.

400,000 300,000 200,000 1,400,000 1,617,600

Slope Co. 200,000 100,000 80,000 300,000 520,000 940,000

Adj. & Eliminations Debit Credit

d. 60,000 d. 100,000 d. 260,000 c.

Cost of sales Expenses

800,000 720,000

300,000 400,000

Dividends paid

200,000

100,000

Patents Goodwill

80,000

2,940,000

Minority Interest

Balance Sheet 600,000 400,000 280,000 400,000 780,000 2,183,330

60,000

d. 156,670 a. 1,120,000 b. 185,600 d. 392,000

e. 60,000 e. 8,400 f. 110,000 d. 80,000 d. 200,000

5,637,600

e.

IS Dr. (Cr.)

1,160,000 1,238,000 c. e. e.

80,000 8,000 5,000

(20,000)

200,000 72,000 195,000 5,110,330

Chapter 12 - Suggested Answers 11

(AA2.2006)

page

Credits AP & accrued exp.

248,000

AD - Bldg. AD - Equipt.

804,000

OS - P100 par OS - P20 par APIC RE - Prose Co. RE - Slope Co. Sales Equity in SI Totals

400,000

380,000 120,000 40,000

d.

6,670 e. 15,000

d. e. f. f.

628,000 196,000

60,000 10,000 20,000 90,000

916,667 400,000

600,000

a. 480,000

120,000

800,000 1,200,000 2,000,000 185,600 5,637,600

800,000 1,200,000 800,000 1,000,000

a. 640,000

160,000 (3,000,000)

b. 185,600 2,940,000

MINI

60,000 542,000

CNI Minority interest

2,285,279

d. 98,000 2,285,270

60,000 542,000 418,000 5,110,330

98,000

Current year depreciation based on book value: Building = (P520,000 – P120,000) / 20 yrs. = P20,000 Equipment = (P940,000 – P40,000) / 10 yrs. = P90,000 Prose Co. and Subsidiary Slope Co. Consolidated Statement of Recognized Income and Expenses For the Year Ended December 31, 2008 Sales Cost of sales Gross Profit Expenses Operating Income Minority Interest net income Consolidated Net Income

P3,000,000 1,160,000 P1,840,000 1,238,000 P 602,000 60,000 P 542,000 Prose Co. and Subsidiary Slope Co. Consolidated Statement of Financial Position December 31, 2008 Assets

Cash Accounts Receivable Inventories Land Buildings Less Accumulated Depreciation Equipment Less Accumulated Depreciation

P 600,000 400,000 280,000 400,000 P 780,000 210,000 P2,183,330 912,330

570,000 1,271,000

Chapter 12 - Suggested Answers 12

(AA2.2006)

page

Patents Goodwill Total Assets

72,000 195,000 P3,788,000 Liabilities and Shareholders’ Equity

Accounts Payable and Accrued Expenses Minority Interest Ordinary Share Capital, P100 par Additional Paid-in Capital Retained Earnings (P1,200,000 + P542,000 - P200,000) Total Liabilities and Shareholders’ Equity Problem 12 - 5 1. a. Notes Payable - Palma Corp. Notes Receivable - Salman Co. b.

2.

Accrued Interest on Notes Payable Accrued Interest on Notes Receivable

Sales Interest revenue Expenses Interest expense Net income Minority net income [(P20,000 - P17,000 - P600) x 10%] Consolidated net income

Problem 12 – 6 1. Minority net income (P100,000 x 20%)

P628,000 418,000 400,000 800,000 1,542,000 P3,788,000 10,000 10,000 600 600

P 70,000 600 ( 53,000) ( 600) P 17,000 ( 240) P 16,760 P 20,000

2.

Current assets of Pentium and Stadium Less Dividends receivable (P20,000 x 80%) Current assets

3.

None, since investment income is eliminated in consolidation.

4.

P1,000,000 – the capital stock of Pentium.

5.

None, since the investment account is eliminated.

6.

Net income for own operation (800,000 – 500,000 – 100,000) Income for Stadium

P 200,000 76,000

Cost of investment Book value of interest acquired (P500,000 x 80%)

P560,000 400,000

7.

P558,000 16,000 P542,000

Chapter 12 - Suggested Answers 13

(AA2.2006)

page

Excess of cost over book value

P160,000

Goodwill (P160,000 / 80%)

P200,000

8.

Goodwill Less Impairment loss for 2007 and 2008 Goodwill as of December 31, 2008

P200,000 16,000 P184,000

9.

Beginning retained earnings of Pentium Consolidated net income Pentium dividends for 2008 Consolidated retained earnings at December 31, 2008

P400,000 276,000 (120,000) P556,000

10.

Ordinary Share Capital and retained earnings of Stadium Net income Dividends Adjustment in assets Shareholders’ Equity of Stadium at December 31, 2008 Minority interest percentage Minority interest at December 31, 2008

P600,000 100,000 ( 50,000) 184,000 P834,000 x 20% P166,800

MULTIPLE CHOICE 12-A

1. 2.

C B

12-B

1.

D

Cost Excess of BV over cost (14,000 x 80%) BV of interest purchased

P290,000 11,200 P301,200

2.

D

P58,400 ÷ 20%

P292,000

3.

C

Consolidated working capital (P726,000 – P300,000) Pole’s working capital (P436,000 – P166,000) Sole’s working capital

P426,000 270,000 P156,000

12-C

1.

A

Net income from own operations of Parker Co. Share in Starter Co. net income (P40,000 x 85%) Dividends received from Starter Co. Consolidated net profit

P100,000 34,000 ( 8,500) P125,500

12-D

1.

D

Net income from own operations of Pentium (P1,000,000 - P600,000 - P180,000) Share in Systems = [P600,000 - P400,000 - P100,000}x 80%] Depreciation of excess of cost over BV of investment (P416,000 - P400,000) / 10 years Consolidated net income

12-E

3. A 4. D

5. 6.

C A

7. A

P220,000 80,000 ( 1,600) P298,400

1.

C

Investment cost

P756,000

2.

B

36,000 x 80%

P 28,800

Chapter 12 - Suggested Answers 14

12-F

page

3.

C

50,000 x 80%

P 40,000

4.

B

Investment cost Dividends (P60,000 + P36,000 – P50,000 – P50,000) x 80% Investment balance, December 31, 2008

P756,000

Original cost of investment Equity in subsidiary income (P60,000 x 90%) Dividends received (P30,000 x 90%) Balance of investment, December 31, 2008

P540,000 54,000 ( 27,000) P567,000

1.

R B

2.

D

12-G

1.

2.

12-H

(AA2.2006)

3,200 P752,800

Investment cost, Jan. 1, 2005 Book value of interest acquired (P800,000 x 90%) Excess of cost over BV

P820,000 720,000 P100,000

Equipment with 10-year life (P100,000 / 90%)

P111,111

B

RE – Singson, Dec. 31, 2008 RE – Singson, Jan. 1, 2005 Increase in RE from date of acquisition Percentage of ownership Pingson’s share on the increase Depreciation on the excess allocated to equipment (P111,111 / 10 years x 4 years) x 90% Amount needed to convert the inv. to equity basis

P400,000 200,000 P200,000 x 90% P180,000

Pingson’s separate net income Share in Singson’s net income P160,000 x 90% Depreciation of equipment Consolidated net income

P500,000

C

40,000 P140,000

P144,000 11,111

132,889 P632,889

3.

C

Shareholders’ equity of Singson, January 1, 2008 Net income for 2008 Dividends for 2008 Adjustment in assets Shareholders’ equity of Singson, December 31, 2008 Minority interest percentage Minority interest, December 31, 2008

P1,000,000 160,000 ( 100,000) 111,111 P1,171,111 x 10% P 117,111

4.

D

P 100,000 x 10%

P

1.

C

Original cost of investment Equity in subsidiary income Amortization of excess of cost over BV of investment P207,500 – (P250,000 x 75%) = P20,000 /75% =P26,667/10 Dividends paid (2,000 shares x 75% x P20) Carrying value of investment, December 31, 2008

P207,500 45,000

10,000

( 2,667) ( 30,000) P219,833

Chapter 12 - Suggested Answers 15

12-I

12-J

12-K

1.

D

1.

D

2.

D

1.

2.

(AA2.2006)

Original cost of investment Equity in subsidiary income: 2007 (P60,000 x 90%) 2008 (P20,000 x 90%) Impairment loss (P800 + P1,200) Dividends received from subsidiary: 2007 (P20,000 x 90%) 2008 (P10,000 x 90%) Balance of investment, December 31, 2008

page

P290,000 54,000 ( 18,000) ( 2,000) ( 18,000) ( 9,000) P297,000

TSE of Saddle Co., Jan. 1, 2010 (P70,000 / 20%) Cumulative net income for 5 years Dividends paid TSE of Saddle Co., Jan. 1, 2005 Percentage of interest of Paddle Book value of acquired investment Excess of cost over book value of investment Cost of investment acquired Original cost of investment Equity in subsidiary income (P200,000 x 80%) Impairment loss on goodwill Dividends received (P50,000 x 80%) Carrying value of investment, Dec. 31, 2010

P350,000 ( 200,000) 50,000 P200,000 x 80% P160,000 50,000 P210,000 P210,000 160,000 ( 12,500) ( 40,000) P317,500

C

Ordinary Share Capital (P75,000 x 90%) Retained earnings (P45,000 x 90%) Book value of Slogan shares

P 67,500 40,500 P108,000

D

Original cost of investment Equity in subsidiary income (P5,000 x 90%) Depreciation of excess of cost over BV of investment (P2,000 / 10 years) Dividends received from Slogan (P4,500 x 90%) Carrying value of investment, December 31, 2008

P110,000 4,500 ( 200) ( 4,050) P110,250

3.

C

P4,500 x 90%

P 4,050

4.

D

Retained earnings, January 1 Net income from own operations Equity in subsidiary income (P 4,500 – 200) Dividends declared and paid Consolidated RE (RE of parent), December 31, 2008

P180,000 45,000 4,300 ( 30,000) P199,300

12-L

1.

D

Share in net income of Starlet Co. (P100,000 x 80%) Impairment loss on goodwill Equity in Starlet Co. income

P 80,000 ( 4,000) P 76,000

12-M

1.

C

Net income of parent company because it already includes the equity in earnings of the subsidiary

P 90,000

Total assets of Par

P 1,110,000

2.

C

Chapter 12 - Suggested Answers 16

(AA2.2006)

Total assets of Sub Total Adjustments and eliminations: Investment in Sub Excess of cost over BV of investment: Cost Book value (OS – P30,000; APIC P100,000; RE – P117,500) Goodwill Less Impairment loss Consolidated total assets

page

350,000 P1,460,000 ( 315,000) P300,000 247,500 P 52,500 5,000

47,500 P1,192,500

3.

A

Retained earnings of parent company

4. 5.

D D

P52,500 – P5,000 Total Stockholders’ equity of parent company

12-N

1.

C

TSE of Polo before the combination FMV of OS issued by Polo (200,000 x P20) Net income of Polo and Solo Impairment loss Dividends paid by Polo Consolidated shareholders’ equity, Dec. 31, 2008

P 6,000,000 4,000,000 1,550,000 ( 100,000) ( 450,000) P 11,000,000

12-O

1.

A

(P 6,500,000 + 630,000 @ 5

P 9,650,000

2.

B

(P 4,400,000 + 630,000 @ 3

P 6,290,000

3.

A

Retained Earnings of Post

4.

D

Net income of Post (P 1,000,000 + P 1,100,000) P Share in Adjusted Net income of Shaw: Net income (P500,000 x 50%) P 250,000 P Impairment loss on goodwill 5,100 P

5.

12-P

1.

C

D

[(P9,000,000 + 300,000 + 500,000 – 350,000) Asset adjustment [5,040,000 – (9,300,000 x 50%)] = P390,000 / 50% Total Percentage of ownership Minority interest Let x = Net income of Port x = P84,080 + .70 of NI of Sort NI of Sort = (P12,000) + .20x x = P84,080 + .70 [(P12,000) + .20x] x = P84,080 - P8,400 + .14x x = P75,680 + .14x

P47,500 P980,000

2,100,000 244,900 2,344,900

P 9,450,00 780,000 P10,230,000 x 50% P5,115,000

Chapter 12 - Suggested Answers 17

(AA2.2006)

x = P75,680/.86 x = P88,000 2.

B

NI of Sort = (P12,000) + .20 x P88,000 NI of Sort = (P12,000) + P17,600 NI of Sort = P5,600

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